CBDCs Make Progress: Thickening Smoke, But No Raging Fire!
Good progress is being made on CBDC but patience is a virtue.
The IMF with a fabulous report showing the progress on CBDCs globally that will bring you up to date on the fast-moving CBDC scene!
CBDCs are progressing globally, but many, like those in India and China, remain in trials. So there’s plenty of smoke—note the e-CNY’s trillion-dollar usage—but still no blazing flame to confirm CBDCs will succeed.
One thing is for sure: patience is a virtue with CBDC. Central banks will not dump CBDCs on the market without testing, so expect a long lead time. Goodness knows China won the award for that!
Those that did quite literally dump them, Nigeria, the Bahamas, and The Eastern Caribbean, learned firsthand that it won’t work.
Sadly, these failures give ammunition to CBDC detractors, who use them to claim that all will fail.
👉TAKEAWAYS
🔹 The global interest in CBDC remains strong, and exploration continues worldwide, with 94% of central banks exploring them.
🔹 Some central banks in large economies are devoting considerable resources to retail CBDC exploration or fine-tuning existing pilots. (Europe, the UK, China, and India.)
🔹 No new rCBDCs have been officially launched since Jamaica, Bahamas, and Nigeria launched CBDCs in 2023. Reasons contributing to their initial slow uptake include insufficient public education, lack of merchant participation, and lack of engagement with and incentives for intermediaries.
🔹 Central banks should not take it for granted that CBDC, once launched, will be adopted
🔹 Successful CBDC adoption hinges on technical functionality and strategic policy and design choices that encourage the involvement of end-users and intermediaries from the outset. and scaled up easily.
🔹 The BIS survey shows that advanced economies believe the likelihood of issuing a wCBDC is higher than that of a rCBDC within the next six years.
🔹 Similar to FPSs and e-money, rCBDC is meant for retail payment, but it is a payment instrument issued by the central bank and can potentially have functionalities that FPSs and e-money do not offer.
🔹 CBDC’s distinguishing value lies in its property as public money in an increasingly digitalized economy.
🔹 Cyber resilience is fundamental to the trust in CBDC.
🔹 A CBDC ecosystem will be a high-value target for a range of threat actors, including nation-states and cybercriminals.
🔹 Central banks must balance CBDC data use and privacy protection.
🔹 CBDC offers an opportunity to improve the trade-off between data use and privacy protection compared to private digital payment systems.
🔹 CBDC WILL NOT BREAK THE BANKS: CBDC could substitute for cash, commercial bank deposits, and reserves. However, the potential adverse impacts can be attenuated, if not avoided, by appropriately adapting monetary operations. (Usage limits, no interest)
🔹 By factoring in cross-border considerations early, central banks can diminish the risks of redesigning or adjusting their domestic CBDC system later.
👊STRAIGHT TALK👊
The CBDC revolution is coming, and there is plenty of smoke as central banks worldwide consider them. There is still no raging fire proving that they will be as successful as there are with Fast Payment Systems (FPSs).
Many will conclude from this that FPSs are sufficient, but they create walled gardens and lack the features of CBDCs. They are not suited for a world where “machines pay.”
My advice is to be patient and understand that CBDCs are long-term projects that will take a few years to astound after launch.
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